How To Set Up A New Factory In Vietnam

Legal/Law, New incorporation, Operations, Trending, VNBG

How To Set Up A New Factory In Vietnam

THE POTENTIAL OF MANUFACTURING BUSINESS IN VIETNAM

Vietnam has emerged as one of Asia’s most successful nations due to its stable political system, dedication to sustainable growth, relatively low inflation, robust FDI inflows, young labor force, and robust digitization. All of these characteristics make Vietnam one of the fastest-growing industrial destinations in the region and the world.

The progressive taxes and FDI assistance policies are the initial aspects that make Vietnam a desirable location for locating factories. Depending on the size of the projects, investors may be eligible for tax cuts, exemptions, and incentives. In addition, Vietnam has signed a number of trade agreements with European nations and ASEAN, adding considerable incentives for global manufacturers to develop their facilities in Vietnam in order to take advantage of the tariffs for the import and export of goods to Vietnam.

On the other hand, Vietnam’s geographical position is a huge asset that generates enormous logistical and industrial advantages. Vietnam has direct access to the most major freight and commerce route in Asia, with various airports, seaports, rail lines, and especially direct highway systems to China, its most important trading partner. This exceptional quality makes Vietnam a particularly desirable location for logistics, the foundation of Vietnam’s growing supply chain.

Therefore, if you are seeking information on how to establish a factory or manufacturing business in Vietnam, this article will provide you with comprehensive details on the requirements and procedures for getting started immediately.

WHAT ARE THE CONDITIONS FOR OPENING A FACTORY OR A MANUFACTURING BUSINESS IN VIETNAM?

According to Vietnam’s law, foreign investors are permitted to establish a factory or manufacturing business in Vietnam that is 100% foreign-owned, and there are two common types of business entities:

The Limited Liability Company (LLC) is the most convenient company structure for privately held companies with 1 to 50 shareholders.
The Joint-Stock Company is suited for unlimited shareholders with the possibility to go IPO as an alternative to LLC above.

Moreover, there are certain requirements/conditions to build a factory or manufacturing business depending on the business line you registered, such as

To open a Film Production, there are some requirements:

Minimum investment amount of VND 1 billion (USD 44,000).
A document issued by the Ministry of Culture and Information attesting that all business requirements have been met.
The director or general director must be a Vietnamese citizen residing permanently in Vietnam and have cinematography experience.

Another example is the Cosmetics Factory. These are the additional requirements:

A product manager must hold a bachelor’s degree in Chemistry, Biology, Pharmaceutical Science, or an equivalent field.
Separate storage locations for flammable and combustible materials, highly toxic substances, and returned or discharged products.
The raw materials must meet the manufacturer’s quality standards.

To ensure an efficient and cost-effective registration process, it is imperative to conduct comprehensive research on the business sector and its associated requirements. At VNBG, we are committed to assisting entrepreneurs in defining the necessary steps and fulfilling the requirements for starting a company. Our team provides free consultation and research services, making the registration process seamless and straightforward.

WHAT ARE THE STEPS TO OPEN A FACTORY OR MANUFACTURING BUSINESS IN VIETNAM?

To establish a factory or a manufacturing business in Vietnam there are a few steps as follow:

Step 1: Secure a location

This is the location where you place your factory, and there are 3 options for you to choose from:

Renting existing facilities: ready-built factories from licensed infrastructure leasing companies or industrial parks/zones in Vietnam. This option is perfect for those who want to quickly establish the manufacturing capacity and aim for a small to medium size factory (below 20,000smq). The rent per square meter in this case is highest among the three options. In exchange, you can engage short-term rent and shorten the time-to-market to the max.
Renting land in industrial parks and then building your own factory: Investors can lease land with a lease term of 40-50 years and a leased area of over 8 hectares. This approach suits the companies that aim for lower rent but are willing to engage for long-term lease and commitment (20-30 years of lease).
Renting land directly from the Government and then building your factory: This is for the investors who plan to lease land for 40-50 years or more and have a large leased area. You can go this way if there is not a size/plant in an industrial park/zone that fit you. This approach requires intensive facilitation with the local government to acquire the land and permits to build and run the factory from scratch. It is recommended if the company aims for a very large scale of manufacturing and needs special construction quality for the factory.

Step 2: Apply for the IRC and BRC

When the location is secured, it is the time to establish your business entity (company or a firm).

To establish a factory or manufacturing firm in Vietnam, you will need to obtain two important documents: the Investment Registration Certificate (IRC) and the Business Registration Certificate (BRC). It would take approximately three to four months for the Department of Planning and Investment (DPI) or the Industrial Parks/Zone Management Committee to issue these certificates. However, if you lease the property or build the facilities outside of the Industrial Park on a large scale, the procedure could take even years to complete and the approval process involves multiple Government offices, departments and levels of management.

The dossier to obtain them must meet the following criteria:

A business address: This is the address of the factory in the form of a leasing contract
A legal representative: The law of Vietnam mandates that all businesses have at least one legal representative. This individual might be a Vietnamese resident or a foreigner, including you, but must have a permanent address in order to be considered a resident.
Paid-up capital: The particular amount of capital is not required by the law, but must be deemed “fair” based on what you can prove. In order to cover the costs of workers, machinery, premises, equipment, etc., it is usually necessary to make a sizable investment prior to launching a manufacturing business. The initial investment could be as much as millions of dollars. If the capital is insufficient, you may need to explain to the authorities how manufacturing can be run with so little money.

Step 3: File The Environmental Impact Assessment Report

After receiving the IRC and BRC in the previous step, the next step is to submit the Environmental Impact Assessment Report to the local People’s Committee for evaluation and approval.

Typically, this report is completed after obtaining the IRC; however, certain business lines with the potential to harm the environment, such as the garment company, must complete the report prior to submitting the dossier for the IRC.

Step 4: Apply for the Construction License, the Fire Protection License

If you rent land and have the plan to build facilities by yourself then you need to obtain 2 additional Licenses, The Construction License and The Fire Protection License. On the other hand, if you rent a ready-built facility inside an Industrial Park and the administrators have already obtained these, you do not need to obtain those licenses anymore.

The Construction License permits the construction of one’s own facilities. At the same time, the Fire Protection License will be provided by the Police Department for Fire Prevention and Fighting and Rescue. Moreover, The Fire Protection License must be obtained if you rent a ready-build facility and want to renovate it, your safety protocol at the factory or manufacturing facilities must be strictly adhered to.

ALTERNATIVE SOLUTION

Typically, to create a factory or manufacturing business in Vietnam, you must have a location that satisfies the aforementioned standards. However, conducting research for a good location and other aspects is tedious and time-consuming (from researching, choosing places, and doing the paperwork).

In the event that you need to establish a company urgently but do not meet all of the prerequisites. We recommend starting with a simple company entity. A trading company, for instance, may use a virtual address as its business address. You can look for a suitable place for your facility and register it as your production site. You may keep the trading firm and its virtual address, or you may relocate the business to your factory.

Learn more details about opening a Trading company in Vietnam – with 100% foreign ownership

HOW CAN VNBG ASSIST YOU?

As Manufacturing Business is a substantial contributor to Vietnam’s GDP, the government has eliminated barriers and enacted favorable legislation to encourage FDI in this area. However, the registration process demands several additional (industry-specific) conditions, and sub-licenses offer the greatest barrier to market access. Before making important decisions, VNBG offers research services and business visits to Industrial Park. In addition, we can assist you in negotiating and facilitating with the lessors, as well as acquiring the necessary licenses (BRC, IRC, other sub-licenses, and so on).

With many years of expertise facilitating the entry of tens of thousands of businesses into the Vietnam market, we are perfectly suited to assist you. We are proud to be the most efficient and cost-effective business solution provider to enter the Vietnam market.